1 st bank of greece workshop on economies of the eastern european and mediterranean countries on...
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11stst Bank of Greece Workshop Bank of Greece Workshop on Economies of the Eastern European and Mediterranean Countrieson Economies of the Eastern European and Mediterranean Countries
The Global Financial Crisis and SEE: Lessons for The Global Financial Crisis and SEE: Lessons for macroeconomic policy and financial stabilitymacroeconomic policy and financial stability
Charalampos VogiatzisCharalampos VogiatzisAthens, 14 MayAthens, 14 May 20 201010
Session II : Preserving financial stability:Session II : Preserving financial stability:the supervisors’ perspectivethe supervisors’ perspective
Preserving Financial Stability: Preserving Financial Stability: The Supervisors' PerspectiveThe Supervisors' Perspective
2
PresentationPresentation
Supervisors, financial stability and the current Supervisors, financial stability and the current crisis : exploring the topiccrisis : exploring the topic
Greek banking groups: a crucial factor for the Greek banking groups: a crucial factor for the stability of the regionstability of the region
Bank of Greece Response as home and host Bank of Greece Response as home and host supervisorsupervisor
Cross-border CooperationCross-border Cooperation
Addressing concerns for Greek fiscal crisis Addressing concerns for Greek fiscal crisis implicationsimplications
ConclusionsConclusions
Financial Stability
Micro threats
Systemically important banks with cross border
activities
(bank originated crisis)
Macro threats
Negative Economic
environment
(fiscal crisis)
Idiosyncratic crisis
General crisis
Exploring the topicExploring the topic
SUPERVISORSBottom up approach
MARKETCONTRIBUTION
CENTRAL BANKSTop down approach
MINISTRIES OF
FINANCE
Home supervisor(solo and
consolidated)
Host supervisor
Lender of the last resort
Stability function
Market Operations
Payment Systems
CrisisOriginator
Crisis ultimate solution
Investors
SovereignSpreads
CDSs
RatingAgencies
Whole sale market
participants
AnalystsMedia
Justified reactionsEuropean Passport
Supervision of systemic
entities Solvency
Liquidity
CrisisManagementEarly detectionBurden Sharing
Acquiring anddisseminating information
Support packages
Bearing the resolution cost
Nationalisations
INTERNATIONAL INSTITUTIONS
EUINSTITUTIONS
ECB
IMFIFIS
BASEL COMMITTEE
CEBS
Executives’incentives
BANKINGGROUPS
Risk management
vstrading
ForwardLooking exit
strategies
Adequacy of systems and
controls
Credit policy
Toxic Assets
ContingencyPlans
Sharing part of the cost
International network policy
Preserving monetary
policy
Preparation for EU
accession
Preserving host countries stability
Adjusting the system in the new Era
Depositors
DepositGuarantee
Scheme
StockExchange
SUPERVISORSBottom up approach
MARKETCONTRIBUTION
CENTRAL BANKSTop down approach
MINISTRIES OF
FINANCE
Home supervisor(solo and
consolidated)
Host supervisor
Lender of the last resort
Stability function
Market Operations
Payment Systems
CrisisOriginator
Crisis ultimate solution
Investors
SovereignSpreads
CDSs
RatingAgencies
Whole sale market
participants
AnalystsMedia
Justified reactionsEuropean Passport
Supervision of systemic
entities Solvency
Liquidity
CrisisManagementEarly detectionBurden Sharing
Acquiring anddisseminating information
Support packages
Bearing the resolution cost
Nationalisations
INTERNATIONAL INSTITUTIONS
EUINSTITUTIONS
ECB
IMFIFIS
BASEL COMMITTEE
CEBS
Executives’incentives
BANKINGGROUPS
Risk management
vstrading
ForwardLooking exit
strategies
Adequacy of systems and
controls
Credit policy
Toxic Assets
ContingencyPlans
Sharing part of the cost
International network policy
Preserving monetary
policy
Preparation for EU
accession
Preserving host countries stability
Adjusting the system in the new Era
Depositors
DepositGuarantee
Scheme
StockExchangeThe players and their The players and their
interactioninteraction
Exploring the topicExploring the topic
Preserving Financial Stability: Preserving Financial Stability: The Supervisors' PerspectiveThe Supervisors' Perspective
5
PresentationPresentation
Supervisors, financial stability and the current Supervisors, financial stability and the current crisis : exploring the topiccrisis : exploring the topic
Greek banking groups: a crucial factor for the Greek banking groups: a crucial factor for the stability of the regionstability of the region
Bank of Greece Response as home and host Bank of Greece Response as home and host supervisorsupervisor
Cross-border CooperationCross-border Cooperation
Addressing concerns for Greek fiscal crisis Addressing concerns for Greek fiscal crisis implicationsimplications
ConclusionsConclusions
6
Greek Banks in SEE & CEEGreek Banks in SEE & CEE..
ALBANIA
NBG
ALPHA BANK
PIRAEUS BANK
EMPORIKI BANK
TURKEY
NBG
EUROBANK
FYR MACEDONIA
NBG
ALPHA BANK
SERBIA
NBG
EUROBANK
ALPHA BANK
PIRAEUS BANK
ATE BANK
POLAND
EUROBANK
BULGARIA
NBG
EUROBANK
ALPHA BANK
PIRAEUS BANK
EMPORIKI BANK
ROMANIA
NBG
EUROBANK
ALPHA BANK
PIRAEUS BANK
EMPORIKI BANK
ATE BANK
MARFIN EGNATIA
UKRAINE
ALPHA BANK
PIRAEUS BANK
EUROBANK
Greek Banks in SEE & CEEGreek Banks in SEE & CEE..
At the end of 2009At the end of 2009
24 banks24 banks
2.897 business units2.897 business units
38.811 employees38.811 employees
Total loans to customers in New Total loans to customers in New Europe Europe €€ 447.37.3 billionbillion
Profits exceeding Profits exceeding € € 390390 millionmillion
8
SEE entities significant both for SEE entities significant both for domestic markets and the Greek groups.domestic markets and the Greek groups.
Greek Banks’ market shares Greek Banks’ market shares in host countriesin host countries
Market Share (% assets)
26,5%29,0%
15,9% 16,3%
28,0%
4,6%
1,6% 2,1%
19,8%
6,4%
0,0%
5,0%
10,0%
15,0%
20,0%
25,0%
30,0%
35,0%
Albania Bulgaria Romania Serbia FYROM Turkey Ukraine Poland Total NewEurope
Total SEE
9
Greek banking groups credit expansion Greek banking groups credit expansion in the region 3.8% during Q1 2010 (total in the region 3.8% during Q1 2010 (total loans at end of Q1 2010 loans at end of Q1 2010 €€ 49.1 billion) 49.1 billion)
Meeting financing needs of local Meeting financing needs of local economieseconomies
Loans to Customers - 31.3.10
0 2.000 4.000 6.000 8.000 10.000 12.000 14.000 16.000
Turkey
Romania
Bulgaria
Poland
Serbia
Albania
Ukraine
FYROM
Long standing commitmentsLong standing commitments
Despite liquidity squeeze funding from Despite liquidity squeeze funding from parent institutions remained unchanged parent institutions remained unchanged ((€€ 18 billion) 18 billion)
Increase of local deposits by 4.7% during Increase of local deposits by 4.7% during Q1 2010 without increasing deposit Q1 2010 without increasing deposit interest rates interest rates
Loans to deposits ratio improved but still Loans to deposits ratio improved but still high (163% at end of March 2010)high (163% at end of March 2010)
Funding to cross border entities is not Funding to cross border entities is not considered as a liquidity source for considered as a liquidity source for parent institutions parent institutions
11
Economic conditions in Eastern Europe Economic conditions in Eastern Europe have been deteriorated since Q4 2008 have been deteriorated since Q4 2008 but in many cases things seem to be but in many cases things seem to be stabilisedstabilised
Positive effects from IMF interventionPositive effects from IMF intervention
Less foreign capital flows Less foreign capital flows
Depreciating local currencies and Depreciating local currencies and relevant implications for foreign relevant implications for foreign currency denominated loans and equity currency denominated loans and equity participationsparticipations
Supervisory concernsSupervisory concerns
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Reduction of import demand from the Reduction of import demand from the rest of Europe due to the crisis rest of Europe due to the crisis implicationsimplications
Implications of fiscal crises in home Implications of fiscal crises in home countriescountries
Asset quality deterioration on the back Asset quality deterioration on the back of the worsening operating environmentof the worsening operating environment
Slow down of credit expansion Slow down of credit expansion
Decreased operating income and Decreased operating income and profitsprofits
Supervisory concernsSupervisory concerns
Preserving Financial Stability: Preserving Financial Stability: The Supervisors' PerspectiveThe Supervisors' Perspective
13
PresentationPresentation
Supervisors, financial stability and the current Supervisors, financial stability and the current crisis : exploring the topiccrisis : exploring the topic
Greek banking groups: a crucial factor for the Greek banking groups: a crucial factor for the stability of the regionstability of the region
Bank of Greece Response as home and host Bank of Greece Response as home and host supervisorsupervisor
Cross-border CooperationCross-border Cooperation
Addressing concerns for Greek fiscal crisis Addressing concerns for Greek fiscal crisis implicationsimplications
ConclusionsConclusions
14
Active support of the European Active support of the European Bank Coordination Initiative.Bank Coordination Initiative.
Encourage banks to keep their SEE Encourage banks to keep their SEE subsidiaries well capitalized.subsidiaries well capitalized.
Monitoring of fundamental figures on a Monitoring of fundamental figures on a monthly basis.monthly basis.
Suggestions to promote further their Suggestions to promote further their risk management practices and internal risk management practices and internal control systems in the region.control systems in the region.
BoG supervisory responseBoG supervisory response
For entities in SEE….For entities in SEE….
15
…….and for the Group.and for the Group
Pre-emptive action to increase the Pre-emptive action to increase the loss absorption capacity of Greek loss absorption capacity of Greek Banks (Tier I> 8%).Banks (Tier I> 8%).
Testing the resilience of the banking Testing the resilience of the banking sector under IMF assumptions.sector under IMF assumptions.
Frequent on-site examinations (e.g. Frequent on-site examinations (e.g. adequacy of loan provisions)adequacy of loan provisions)
Close monitoring of Greek banks' Close monitoring of Greek banks' liquidity positions and contingency liquidity positions and contingency funding policies.funding policies.
BoG supervisory responseBoG supervisory response
Preserving Financial Stability: Preserving Financial Stability: The Supervisors' PerspectiveThe Supervisors' Perspective
16
PresentationPresentation
Supervisors, financial stability and the current Supervisors, financial stability and the current crisis : exploring the topiccrisis : exploring the topic
Greek banking groups: a crucial factor for the Greek banking groups: a crucial factor for the stability of the regionstability of the region
Bank of Greece Response as home and host Bank of Greece Response as home and host supervisorsupervisor
Cross-border CooperationCross-border Cooperation
Addressing concerns for Greek fiscal crisis Addressing concerns for Greek fiscal crisis implicationsimplications
ConclusionsConclusions
17
Strong Home/Host co-operation Strong Home/Host co-operation before the crisis….before the crisis….
Bilateral MoUsBilateral MoUs
Governor’s Club meetingsGovernor’s Club meetings
SEE Multilateral MoU.SEE Multilateral MoU.
Joint InspectionsJoint Inspections
Exchange of findings reportsExchange of findings reports
Home host cooperationHome host cooperation
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…….and in the aftermath of the .and in the aftermath of the crisiscrisis
Bilateral meeting of Governor’s and Bilateral meeting of Governor’s and Heads of Banking Supervision with Heads of Banking Supervision with the participation of banks’ top the participation of banks’ top management. management.
Speed up the settlement of Colleges Speed up the settlement of Colleges of Supervisors of Supervisors
Arrange Joint Risk Assessment Arrange Joint Risk Assessment issues on an horizontal basis. issues on an horizontal basis.
Home host cooperationHome host cooperation
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…….and in the aftermath of the .and in the aftermath of the crisis (2)crisis (2)
Exchange of visits of home and host Exchange of visits of home and host supervisors supervisors
Comprehensive communiqués Comprehensive communiqués
Immediate provision of information Immediate provision of information for urgent issues - teleconferencesfor urgent issues - teleconferences
Participation in EU programsParticipation in EU programs
Home host cooperationHome host cooperation
Preserving Financial Stability: Preserving Financial Stability: The Supervisors' PerspectiveThe Supervisors' Perspective
20
PresentationPresentation
Supervisors, financial stability and the current Supervisors, financial stability and the current crisis : exploring the topiccrisis : exploring the topic
Greek banking groups: a crucial factor for the Greek banking groups: a crucial factor for the stability of the regionstability of the region
Bank of Greece Response as home and host Bank of Greece Response as home and host supervisorsupervisor
Cross-border CooperationCross-border Cooperation
Addressing concerns for Greek fiscal crisis Addressing concerns for Greek fiscal crisis implicationsimplications
ConclusionsConclusions
21
Unlike other countries, the challenges Unlike other countries, the challenges facing the Greek commercial banks do facing the Greek commercial banks do not originate in the banking sector. not originate in the banking sector.
This is a fiscal crisis that have negative This is a fiscal crisis that have negative effects on the banking sector unless it is effects on the banking sector unless it is forcefully addressed in the coming forcefully addressed in the coming months. months.
Greek commercial banks proved sound Greek commercial banks proved sound and resilient and resilient
Addressing concerns for Greek fiscal Addressing concerns for Greek fiscal crisis implicationscrisis implications
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Credit risk higher but not acceleratingCredit risk higher but not accelerating
More conservative credit policies and More conservative credit policies and higher provisions higher provisions
Market risk exposure containedMarket risk exposure contained
Liquidity position under pressure but Liquidity position under pressure but manageable thanks to ECB manageable thanks to ECB
EffectiveEffective state support planstate support plan
Addressing concerns for Greek fiscal Addressing concerns for Greek fiscal crisis implicationscrisis implications
23
SE Europe more of an opportunity SE Europe more of an opportunity than a challenge. Greek ethan a challenge. Greek eentities in entities in the region well funded and capitalized the region well funded and capitalized to reduce contagion risk to reduce contagion risk
Intensified on site examinationsIntensified on site examinations
Communication with top management Communication with top management and treasurers of banks almost on a and treasurers of banks almost on a daily basisdaily basis
Addressing concerns for Greek fiscal Addressing concerns for Greek fiscal crisis implicationscrisis implications
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Banks required to develop a new Banks required to develop a new strategy for the new erastrategy for the new era
Involvement of Board of DirectorsInvolvement of Board of Directors
Exit plansExit plans
Increased frequency of reportingIncreased frequency of reporting
Improve systems and controlsImprove systems and controls
Addressing concerns for Greek fiscal Addressing concerns for Greek fiscal crisis implicationscrisis implications
Addressing concerns for Greek fiscal Addressing concerns for Greek fiscal crisis implicationscrisis implications
Joined IMF-EC-ECB plan:Joined IMF-EC-ECB plan:
Credible plan of Credible plan of €€ 110 billion which 110 billion which addresses funding needs of Greece for addresses funding needs of Greece for the next crucial years the next crucial years
Political will to implement the strict Political will to implement the strict austerity measures. austerity measures.
Stability fund with Stability fund with €10 €10 billion available to billion available to further boost banks’ capital if neededfurther boost banks’ capital if needed
Regular reviews of the Greek banking Regular reviews of the Greek banking system by experts of the three system by experts of the three
institutionsinstitutions
Addressing concerns for Greek fiscal Addressing concerns for Greek fiscal crisis implicationscrisis implications
In additionIn addition
ECB decision for the eligibility of ECB decision for the eligibility of Greek Government BondsGreek Government Bonds
Expansion of state plan by Expansion of state plan by € 15 € 15 billionbillion
ECB ECB decidecision sion to intervene in public to intervene in public and private debt markets to ensure and private debt markets to ensure liquidity in financial segments that are liquidity in financial segments that are dysfunctional.dysfunctional.
EU EU packagepackage of of € € 500billion plus IMF 500billion plus IMF contribution of 200-250 billioncontribution of 200-250 billion
Preserving Financial Stability: Preserving Financial Stability: The Supervisors' PerspectiveThe Supervisors' Perspective
27
PresentationPresentation
Supervisors, financial stability and the current Supervisors, financial stability and the current crisis : exploring the topiccrisis : exploring the topic
Greek banking groups: a crucial factor for the Greek banking groups: a crucial factor for the stability of the regionstability of the region
Bank of Greece Response as home and host Bank of Greece Response as home and host supervisorsupervisor
Cross-border CooperationCross-border Cooperation
Addressing concerns for Greek fiscal crisis Addressing concerns for Greek fiscal crisis implicationsimplications
ConclusionsConclusions
28
Europe needs a fundamental overhaul of its Europe needs a fundamental overhaul of its financial stability architecture that allows its financial stability architecture that allows its citizens to enjoy the benefits of financial citizens to enjoy the benefits of financial integration and protects them against the kind integration and protects them against the kind of twin fiscal-financial crises that are currently of twin fiscal-financial crises that are currently afflicting several member states. The reform of afflicting several member states. The reform of the supervisory and regulatory framework that the supervisory and regulatory framework that is currently before the European Parliament is is currently before the European Parliament is very important, but takes us only half the way. It very important, but takes us only half the way. It needs to be matched by an integrated EU crisis needs to be matched by an integrated EU crisis management and resolution framework.management and resolution framework.
Conclusions
Dominique Strauss-Kahn Dominique Strauss-Kahn
Brussels, March 2010 Brussels, March 2010
Thank you!Thank you!
Charalampos VogiatzisCharalampos Vogiatzis
Deputy DirectorDeputy Director
Bank of Greece Bank of Greece
Department for the Supervision Department for the Supervision
of Credit and Financial Institutionsof Credit and Financial Institutions
Preserving Financial Stability: Preserving Financial Stability: The Supervisors' PerspectiveThe Supervisors' Perspective
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